As you may or may not be aware, the One Big Beautiful Bill Act (OBBBA) that was signed into law in the summer of 2025 included a provision that allows you to deduct the interest on your auto loan. Here is what I said about it in the post we published a few days after OBBBA passed:
Auto loan interest deduction means up to $10,000 in auto loan interest on newly purchased cars can be deducted through 2028. It's only temporary, and it's limited to cars “whose final assembly was in the USA.” This makes buying brand new cars on credit slightly less stupid.
Today, let's talk about this new provision a little bit more.
The Rules
Here are a few rules about this that you should keep in mind.
- You can only deduct $10,000 in interest. Note that this is not the interest on a $10,000 loan. It's $10,000 in interest. If you bought a $100,000 car with a 10% loan, all of the interest is deductible. If you bought more than one car and the total interest is less than $10,000, it's still all deductible.
- The car(s) must be brand new. Even if you buy it with 5,000 miles on it, it doesn't count. Brand new cars only.
- The car(s) must be for personal use. No business cars.
- The loan must be secured by a lien on the vehicle. It has to be a car loan, not a car put on your credit card.
- It must be a typical vehicle. Technically, that's a car, minivan, van, SUV, pickup truck, or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds. No huge semis or RVs. For reference, my truck weighs about 8,000 pounds.
- You do not have to itemize to get the deduction. It's pretty interesting to see so many deductions moving away from Schedule A.
- The deduction phases out at a MAGI of $100,000 single, $200,000 married, and it's not indexed to inflation. That will exclude MANY WCIers, particularly those who can afford a car that will run up $10,000 in interest.
- The deduction is temporary (it expires after 2028).
- The car must have “undergone final assembly in the United States.” Auto assembly is a murky business these days, but here is a comprehensive list. There are 117 cars on it, including cars from the following brands, many of which you may not consider American. Note that not all cars from these brands get their final assembly in the US, so check the list for yours before buying—at least if you're buying a car with debt
like an idiot.
- Acura
- BMW
- Buick
- Cadillac
- Chevrolet
- Dodge
- Ford
- Genesis
- GMC
- Honda
- Hyundai
- Infiniti
- Jeep
- Kia
- Lexus
- Lincoln
- Lucid
- Mazda
- Mercedes-Benz
- Nissan
- Polestar
- Ram
- Rivian
- Subaru
- Tesla
- Toyota
- Vinfast
- Volkswagen
- Volvo
See what I mean? Pretty much all of the brands make something in the US, but it might be as few as one model.
More information here:
Quit Buying Cars on Credit — 15 Reasons to Pay Cash
What I Think About Cars
Admittedly, I'm not a car guy. As an attending, I have driven everything from an $1,850 beater (sold four years later for $1,500) to a $94,000 truck (with the occasional rented supercar). The only car loan I ever had was for a $3,000 Geo Prizm that my parents sold me as a college senior on a 0% interest loan that I didn't have to pay back until after medical school. I firmly believe that reliable, reasonably safe transportation can be had for $5,000-$10,000 (and a few years ago, I would have lowered that amount as low as $2,000). So, it seems silly to me for anyone to ever have a five-figure car loan.
I am firmly convinced that the reason most Americans are not millionaires is sitting in their driveway. If you buy something that costs an extra $5,000 per year to operate (depreciation, maintenance, insurance, interest, etc.), that adds up (at 8%) to $1.3 million over 40 years.
=FV(8%,40,-5000) = $1,295,282
All of that said, I am completely aware that $5,000 per year of spending should not make the difference between an attending physician who earns $375,000 (the average income) retiring early as a financially independent multi-millionaire and not having the ability to do so. If taking out a car loan for a $60,000 car you drive for a decade is the only thing you “screw up,” you're probably still going to be fine.
Is It Now OK to Buy a Car on Credit?
Not really. I mean, do whatever you want. It's your money and your life. Personal finance isn't a religion, and you don't need permission from your pastor to take out a car loan. But this law only makes a car loan slightly less dumb than it was before.
First, it only goes through 2028. At most, you can deduct auto loan interest for only 36 months if you buy a car in January 2026.
Second, most WCIers, at least attendings, still can't take ANY auto loan interest deduction. It phases out at $100,000 ($200,000 MFJ). If your income is that low, buying expensive cars on credit is a particularly bad idea for you.
Third, if you're taking my advice and buying a car worth less than $10,000, you're probably not saving much on your taxes if you have to buy it with borrowed money. Let's say it's a $6,000 loan at 5%. The interest on that is $300 per year. If you're making less than $100,000, you're probably in the 12% bracket. (You're probably a resident, too.) That means 12% * $300 = $36. Big whoop. Oh wait. You don't even get that much of a deduction. Remember, this has to be for a NEW car. Buying a new car when you make less than $100,000 is stupid less than ideal.
Fourth, if you're buying a fancy new car with a lousy loan, this deduction doesn't somehow make that smart. Again, let's assume you can somehow qualify for a 5% interest rate on this new $35,000 Toyota Camry. That's $35,000 * 5% * 12% = $210 per year. Meanwhile, you're making monthly payments on a five-year loan of $674. It's hard to get ahead when most of your disposable income goes to payments on stuff you've already bought.
More information here:
My 27-Year-Old Car Will Make Me a Multimillionaire
The Bottom Line
No, the advice hasn't changed. It's still pretty much just as dumb to buy cars on credit as it ever was.
What do you think? Am I completely wrong? Are you or anybody you know going to take advantage of this new OBBBA provision?